Idaho High Court Takes a Step Toward Loser-Pays

The so-called English Rule on legal fees, better termed the rest-of-the-world rule, requires the losing party in a lawsuit to compensate the prevailing party for some of the costs it has laid out having to prove that it was in the legal right. Over centuries around the globe the rule has shown itself consistent with the interests of justice (since it helps to make whole parties whose actions and legal claims were vindicated) and has generally improved incentives in litigation by discouraging speculative claims and defenses, narrowing issues, and promoting settlement.

The organized lawyers of one nation, however, have remained stubbornly resistant to loser-pays: those in the United States. There are, to be sure, some notable exceptions: Alaska has practiced a form of the rule since its days as a territory, and “offer of settlement” variants, invoked after litigants turn down an offer and then do less well at trial, have made some headway lately. Since legislators in several states, especially out West, have shown an interest in promoting the loser-pays principle, you’d think there would be faster progress. Yet such legislative declarations are often foiled when court systems interpret guidance language narrowly or unsympathetically so as to restrict fee shifts to a relatively few outrageous or abusive cases. 

That was the situation in Idaho until this fall. Since 1979 the Idaho Supreme Court had followed a rule directing courts to deny fee awards except in cases that were “brought, pursued or defended frivolously, unreasonably or without foundation.” Eight years later, in a 1987 enactment, the state’s legislature declared its intent that “winners in civil cases have ‘the right to be made whole for attorney’s fees and costs when justice so requires,” on the face of it a broader standard. A lot of good that did: for nearly 30 years, the high court in Boise refused to take the hint and stuck with its old standard.

Until now. On September 28, in the case of Hoffer v. Shappard, the Idaho Supreme Court announced that it would at last yield to “the clear intention of the legislature” and adopt, for cases pending as of next March 1, a more generous fee standard. It will recognize that “prevailing parties in civil litigation have the right to be made whole for attorney fees they have incurred ‘when justice so requires’ ” and will accord “broad authority to judges overseeing civil actions to award reasonable attorney fees.”

Critics, as well as dissenters in the 3-2 ruling, are predicting the worst. Their concerns are summed up in Betsy Russell’s report in the Spokane Spokesman-Review (which also generously quotes me). As I note, there are genuine risks ahead: experience suggests that courts in a fee-shift system must be on guard to check lawyers’ temptation to gold-plate fee requests, and the high court or legislature should step in to cabin discretion if lower court judges head off in such different directions that fee outcomes start to vary arbitrarily from one courtroom to the next. Loser-pays systems typically develop mechanisms to handle cases of split or partial victories, and Idaho should be prepared to do so as well.

Those important points aside, I’m rooting for the Court’s new approach to succeed, and hoping that Idaho legislators, trial judges, and lawyers will cooperate in coming months to help make that happen.